In this article, we discuss the 5 best clothing stocks to buy now. If you want to read our discussion on the apparel sector, go directly to 10 Best Clothing Stocks To Buy Now.
5. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is a Minneapolis-based seventh biggest retailer in the US.
Although Target Corporation (NYSE:TGT) is not a pure play like the other apparel stocks, the company has 48 apparel brands in its portfolio, with 10 of these brands contributing over $1 billion in sales annually. The apparel and accessories segment contributed 17% to the company’s $93 billion top line in 2021. These brands have an omnichannel presence and provide an easy shopping experience to customers. Even during the COVID-19 pandemic, Target Corporation (NYSE:TGT) received a designation as an essential service and was not impacted by lockdowns and restrictions. Target Corporation (NYSE:TGT) is gearing up for the holiday season by employing nearly 100,000 seasonal employees and building up its inventory.
Here’s what Ensemble Capital said about Target Corporation (NYSE:TGT) in its Q2 2022 investor letter:
“Speaking on their earnings call, Target’s CEO Brian Cornell said that spending on items such as kitchen appliances, TVs and outdoor furniture – products that consumers splurged on while stuck at home – has declined sharply. While they had expected there to be a shift from spending on goods to services as America exited pandemic lifestyles, they didn’t anticipate the speed and magnitude of the shift. On the other hand, they saw luggage sales grow by an astounding 50%, along with robust growth in “going out” categories such as sunscreen, beauty products, and even toys as families return to hosting large birthday parties for their children. So, despite Target seeing increasing foot traffic and higher spending overall, they got caught with the wrong inventory relative to what customers wanted to buy. What this means for investors is that it is incorrect to say that the consumer is weak, despite weakness in some consumer facing companies. Rather what people are spending money on is changing rapidly, which is good or bad for a given company based on what they sell. Importantly, with demand shifting from items that were in short supply, there is good reason to think that inflation in these categories will moderate. Indeed, Target stated that their plan was to put their excess inventory on sale, something that consumers haven’t seen a lot of over the past two years. But as demand for COVID era goods moderates, demand for activities such as travel has surged, driving up inflation in airline tickets and hotel rooms. This illustrates the way that the shock waves from the pandemic have scrambled the typical economic cycle such that even at a time when all signs point to the biggest summer travel season in history, investors are worried that we are headed into, or are already in, a recession.”
